Edited version of your private ruling

Authorisation Number: 1012601151202

Ruling

Subject: Assessability of foreign employment income

Question and answer

Is the salary you earn in Country X exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on:

1 July 2013

Relevant facts and circumstances

You were born in and are a citizen of Australia.

Prior to your departure, you lived in an apartment that you own in Australia. The apartment is now being rented out.

You departed Australia in the income year ending 30 June 20XX to go to Country X with your spouse who went for work purposes.

You returned to Australia for the period for several weeks.

Your employment commenced upon your return to Country X.

Your employer is Australian.

Your employment contract is for two years.

Your visa expires in the year ending 30 June 20YY but you may extend it if your spouse extends their visa.

You and your spouse live in accommodation in Country X provided by your spouse's employer.

Your employer has confirmed that your employment position is directly attributable to the delivery of Australian official development assistance (ODA) by your employer and funding for your position is reported to the OECD DAC.

Your salary is exempt from income tax in Country X under the Treaty on Development Cooperation between the Government of Australia and the Government of Country X.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Section 23AG.

Reasons for decision

Under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936), where you are working overseas and earning foreign employment income, it is exempt from income tax in Australia if all of the following applies:

• you are an Australian resident

• you are engaged in continuous foreign service as an employee for 91 days or

• more

• your foreign service is directly attributable to the delivery of Australian official

• development assistance (ODA) by your employer, and

• you are not excluded from the exemption by specific conditions listed in the law.

Residency for tax purposes

Generally where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined within the tax provisions and provides four tests to ascertain the residency status.

Relevant to your situation are the first two tests which are examined in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia, a copy of which is available from www.ato.gov.au.

In your case, given regard to your circumstances as a whole and a consideration of the relevant residency tests, it is accepted that you are a resident of Australia for tax purposes.

Engaged in continuous foreign service

In your case, you are in Country X and you will be there for more than 91 days.

Official development assistance (ODA)

In your case, your employer has confirmed that your foreign service is directly attributable to the delivery of ODA and funding for your position is reported to the OECD DAC.

Exclusions to the exemption

You are not excluded from the exemption by any specific conditions listed in the law. As your salary is specifically exempt from income tax in Country X under the Treaty on Development Cooperation between the Government of Australia and the Government of Country X, you are not excluded from exemption under subsection 23AG(2) of the ITAA 1936 as this is not a reason listed in that subsection.

Therefore, as you meet all of the conditions set out in section 23AG of the ITAA 1936, the salary you earn in Country X is exempt from income tax in Australia.

Please note that you are still required to include the amount of exempt foreign employment income in your tax return. You will not be required to pay Australian tax on your exempt foreign employment income, however it is taken into account in calculating the Australian tax on other assessable income derived by you. Any deductions that relate to the exempt foreign employment income are allowed as if the exempt income was assessable income. That is, expenses which relate directly to earning exempt income in the foreign country are deductible from that income.